Cantor Fitzgerald Lowers Price Target On Curaleaf After Q2 Earnings Report, Still Among Top Picks In MSO Group

Cannabis company Curaleaf Holdings, Inc. CURA CURLF reported sales of $312.2 million in the second quarter of 2021, beating the estimate by $4.38 million.

According to the earnings report the company posted on Monday after market close, that's a 20% sequential and 166% year-over-year pop in revenue. GAAP diluted earnings per share were negative $0.01.

The Analyst

Cantor Fitzgerald's Pablo Zuanic kept an 'Overweight' rating on Curaleaf stock, lowering the price target to $24 from $26.50.

The Thesis

The analyst said Tuesday that the reported sequential organic sales growth of 18% was "above the underlying market growth of low teens in the company's markets."

According to Zuanic, sales from the company's top five states, including Florida, Illinois, Pennsylvania, Arizona, and Massachusetts, accounted for 50-55% of the second-quarter sales.

Based in Wakefield, Massachusetts, the company reported a positive adjusted EBITDA of $84.7 million, representing year-over-year and sequential growth of 201% and 35%, respectively.

Zuanic added that EBITDA margins of 27% were "in line with our estimate."

The inventory built ahead of the launch of recreational sales in key states resulted in the cash flow of negative $73 million, "the worst in the company's history," the analyst added.

However, taking into account the reaffirmed sales guidance of $1.2-1.3 billion and the management's expectations regarding the consistent margin improvement in the second half of 2021, along with a positive operating cash flow by the fourth quarter, Zuanic confirmed that Curaleaf "remains one of our top picks in the MSO group."

Following a $310 million worth acquisition of one of the largest cannabis companies in Europe, EMMAC Life Sciences, Zuanic expects the newly created Curaleaf International Holdings Limited on the island of Guernsey to contribute $35 million in pro forma sales in 2021.

The analyst estimated the enterprise value at $7.5 million, considering the share count at $721 million and leases of $312 million in net debt.

"We think the ~30% EBITDA premium is fair and should probably be higher," Zuanic said, taking into account the company's footprint, share positions in key states, as well as recreational optionality in key states, funded expansion plans and European operations.

Price Action

Curaleaf's shares were trading 0.32% higher at $11.97 per share at the time of writing Tuesday late morning.

Photo: Courtesy of Maxim Hopman on Unsplash